September 26, 2008

The NYT reports on yesterday's meeting at the White House, where the supposedly worked-out bailout plan broke down. Was it that John McCain came to town to show off his leadership, and he couldn't be allowed to get credit for the plan? Or was it that "once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan"?

After spending Thursday morning behind closed doors, senior lawmakers from both parties emerged shortly before 1 p.m. in the ornate painted corridors on the first floor of the Capitol to herald their agreement on the broad outlines of a deal....

But a few blocks away, a senior House Republican lawmaker was at a luncheon with reporters, saying his caucus would never go along with the deal. This Republican said Representative Eric Cantor of Virginia, the chief deputy whip, was circulating an alternative course that would rely on government-backed insurance, not taxpayer-financed purchase of mortgage assets....

House Republicans have spent days expressing their unease about a huge government intervention, which they regard as a step down the path to socialism.

And McCain "declined to take a stand."

Why did McCain arrive showily, as if he was the man to close the deal, and then not do anything? Has McCain said one word about whether he thinks now is the time to build a bulwark against socialism? And can John McCain explain why government insurance as opposed to government asset-purchasing is the key to saving us from socialism?

Unless McCain talks about some of these things, I don't see the point of his swooping onto the scene to be the leader. Was he just betting that it would look good? But why should he have counted on Democrats allowing him to look good? And, insanely, it seems that Republicans have undercut him.

Belatedly, he must realize that it would have been better to take a low profile and let his congressional colleagues steer their deal to a conclusion -- which is what Barack Obama did.

And then there's the debate. Obama will be there, winning by forfeiture, unless McCain's ultimatum -- he can't debate unless the deal is closed -- was a bluff.

156 comments:

Before you run with the NYT account, take note of this from the article:

"Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, denounced the session as “a rescue plan for John McCain,” and proclaimed it a waste of precious hours that could have been spent negotiating.

But a top aide to Mr. Boehner said it was Democrats who had done the political posturing. The aide, Kevin Smith, said Republicans revolted, in part, because they were chafing at what they saw as an attempt by Democrats to jam through an agreement on the bailout early Thursday and deny Mr. McCain an opportunity to participate in the agreement."

Two questions, is this the right plan and is the amount of money correct? I don't think the answers are obvious.

I am guessing he's against the bailout. But he has to find another way out. It's not clear if House Republican's new proposal is satisfying. The academic economists are build a consensus against the bailout. And the voters seem too. So, I guess McCain is going populism+old conservatism. The only thing uncertain is if there can be a credible new plan. This is real meat.

"Why did McCain arrive showily, as if he was the man to close the deal, and then not do anything?"

Because he's a rational adult, and he's not going to commit 700 billion or 1 trillion dollars without getting more information. You'd rather he just screech and throw money?

As for the debate, no, if Obama is there alone, McCain wins, because he's being an adult and showing leadership, while Obama is being a narcissist by putting himself before the nation -- not to mention that he's an elected Senator, so his place is in the Senate during this crisis, not stroking his ego.

So politics have entered into it. Well, who can't blame McCain for that? It seems to me, at least, that some progress was being made until McCain came in and did what, exactly? I'm not sure what he did, but now progress has stopped. Correlation != causation, but that still means it looks bad.

If McCain does not show up tonight, and Obama is there, taking questions, soothing the nation's psyche? (Yes, Two Big Ifs) McCain will lose.

The real Hail Mary moment, instead of "suspend the campaign", might come if there can be a new plan rejecting the bailout. The conservative base will be in euphoria again. But this one needs some economic insight. McCain might have self-doubt on this one. As he said, he's not strong in economics.

A "leader" does not "keep a low profile" when huge issues are before the Congress where it is his present job to participate.

At this point, I'm glad someone (not McCain) has stepped up and said that this is not the best thing for our country. Best if the "deal" is never done. Just putting off the inevitable. Let capitalism work its way through. It's not always neat and clean and happy, but further distorting the markets is just putting off the final reckoning.

Well, the story seems to be - at least, the Democratic version of it - that “McCain and the House Republicans are undercutting the Paulson plan, talking about a wholly different approach.” Whether that's a plus or minus with voters depends on whether they're sold on the Paulson plan. For those who aren't, McCain coming in with a different approach (setting aside whether it really is his approach) would be desirable; should it pass, and should it be seen to work, the gamble pays off. If the alternative is affixed in the public mind as "his" plan and he can't get it passed, or if it doesn't work, presumably the gamble won't pay off.

Can someone explain this government-backed insurance to me? I don't understand how this could help. The damage is done, isn't it? How would insurance help? It would be like buying flood insurance for your house in Galveston today and then expecting it to pay for Hurricane Ike damage. And if it does work retroactively, would that just mean that the government is making huge insurance payouts? How is that different from a bailout?

As the debate over a $700 billion bank bailout rages on in Washington, one of the nation's largest banks -- Washington Mutual Inc. -- has collapsed under the weight of its enormous bad bets on the mortgage market.

Can someone explain this government-backed insurance to me? I don't understand how this could help. The damage is done, isn't it? How would insurance help? It would be like buying flood insurance for your house in Galveston today and then expecting it to pay for Hurricane Ike damage. And if it does work retroactively, would that just mean that the government is making huge insurance payouts? How is that different from a bailout?

As I understand it, the secondary proposal is for private firms to purchase the securities which in turn would be insured by the Feds with the hope that once they are valued, the actual value will be higher than the purchase price. If not, then they will be insured by the Feds for the difference. It's different from the first proposal since the Feds would buy the assets outright and essenitally own them. Again, the key problem is that no one knows what these things are worth. There is more to it obviously but that I think is the Cliff Notes version.

It boils down to the Feds either insuring the securities or buying them outright. I think the GOP sees their plan as carrying less risk to the taxpayer. The flaw is assuming private investors will step in and take the gamble.

No, but why invest the time? Pelosi has a strong incentive to find out, and it follows from her apparent need to get GOP votes that there are members of her caucus who are against the Paulson plan. If there was no need for Republican votes, she wouldn't be trying to get them.

bearbee said..."As the debate over a $700 billion bank bailout rages on in Washington, ... Washington Mutual ... has collapsed under the weight of its enormous bad bets on the mortgage market"

Does this mean that the world is going to end? And if the failure of this bank doesn't end the world, why would the failure of any other bank do so? Or is it mass simultaneous failure that's the problem?

Why did McCain arrive showily, as if he was the man to close the deal, and then not do anything?

It is my understanding that Paulson asked Gramm to call McCain and ask for his help in securing House GOP support for the plan, which they have never endorsed or supported in any way.

There was no surprise that the House GOP was opposed to the plan.

As for not doing anything, if you want to get legislative opponents on board, then you have to listen to them and put something into the bill that they want.

If you want a bipartisan vote, then you need a bipartisan bill, and the House GOP isn't playing until their ideas are considered and some included in the final product. McCain appears to be listening to them and helping them get their ideas on the table.

This is how legislative negotiations work. Very messy and unpredictable, but necessary if you want the other side to buy into the program. Having McCain walk into the House GOP conference and demand they buy into the bailout would not be productive, assuming, of course, that McCain supports the bailout in the first place.

So, other than quietly negotiating behind the scenes, what else do you expect McCain to do?

Yes, its hilarious to see Althouse take anything from the Times seriously. As if he Times would tell anything remotely true about John McCain. Or report anything "fairly." Come on. It was just a few days ago that the Times fibbed about McCain's campaign manager taking money from Fannie and Freddie.

This would be the largest Bill ever passed in the history of the Congress. President Bush and the Democrats are joined at the hip on this one leaving conservatives out in the cold. If not-so conservative John McCain can be a voice here for conservatives, then we need him there.

Besides, Pelosi and the dems can ram this bill through without compromise. Hopefully John McCain will vote against that and rail on the Dem's big give-away to Wall Street.

The Democrats' behavior is similar to what they have done with cutting off the Iraq war funding - you remember that great victory that they won in 2006? Unpopular war, unpopular President, bring the troops home now?

They could have cut off funding simply by not approving it. Instead, they tried to bluff Bush into doing it and surprise: stupid Bush refused to. What they wanted was to accomplish their goal but have no fingerprints on it.

Democrats are not going to do all the heavy lifting while the Republicans sit back and jeer. That's the reality.

It certainly doesn't make much sense though. If there are enough votes to get the bill passed through the House and Senate then what is the issue? If anything it makes the GOP look like stonewalling fools while the financial markets melt down whereas the Democrats are trying to do solve the crisis.

This bailout does not seem popular with the average man on the street so perhaps they are simply trying to garner more support than needed for political cover?

I have to say, I don't even care about the money. $700bn - whatever. That's less than we spend on social security each year, and the bailout is a one-off. So let's get real - this is pocket change in federal terms. What worries me is the level of control and involvement it gives the government (the Democrats don't understand this, of course - they can only think in terms of "oversight" - i.e. Congressional oversight - as though the problem was which branch of government gets to wield the power), and the lack (so far as I've seen) of any real punishment for the people who created this mess. I know I want to see - and I think many people want to see - naming and shaming of those responsible, and some kind of hammer of the gods dropping on them.

If the American taxpayer is going to have to clean up this mess for "wall street," we deserve to know whose mess we're cleaning up after - not just some fuzzy, amorphous, impersonal institution like "Wall Street." And there has to be some kind of punishment for them. This money shouldn't come free, and the kind of control represented by the Paulson plan can't come free.

It boils down to the Feds either insuring the securities or buying them outright. I think the GOP sees their plan as carrying less risk to the taxpayer. The flaw is assuming private investors will step in and take the gamble.

I severly dislike the insurance plan. I'd rather we buy them outright and then sell them later, hopefully at a profit.

If the American taxpayer is going to have to clean up this mess for "wall street," we deserve to know whose mess we're cleaning up after - not just some fuzzy,

It's not just Wall Street. It's also the liberals in Congress who pushed sub-prime lending onto banks. We are bailing these politicians out. We are also bailing out the jerks who borrowed money knowing they could not afford their loans.

Sloanasaurus said..."Besides, Pelosi and the dems can ram this bill through without compromise."

I don't think they can. If they could, they would have done so. If the lack of GOP votes in the House is a logjam, Pelosi doesn't have the votes. Maybe those dems who are against it just haven't said so publicly, or maybe I missed a press conference or two, but Pelosi doesn't have the votes. If she did, she wouldn't be going hat in hand to John Boehner.

That must be today's meme. Who is reporting this nonsense? Dems or friends of Dems, most likely.

McCain and his Republican allies are building a plan that (1) doesn't throw $700 billion of taxpayer money down Wall Street, (2) revises the 'mark to market' accounting practice that was one of the causes of the financial mess, (3) places more risk on the banks that, you know, actually fucked up, (3) revises the controls on Freddie and Fannie, and (4)takes out of the game the money that some Dems want to divert to ACORN and other such groups.

Along the way, McCain is building a governing coalition with the conservatives in the senate and house.

Not bad work, I'd say, and a clear example of leadership (as opposed to being on standby near a cell phone). Nothing beats experience.

It's also brilliant politics, which is why the Dems are turning purple this morning. McCain can show up at the debate this evening or next week and correctly claim that his actions helped save the taxpayers $$ Humpty Billions, while Obama was waiting for his cell phone to ring.

Or if the original deal is really, really good, then the Dems should call for the vote. But they won't....

boils down to the Feds either insuring the securities or buying them outright. I think the GOP sees their plan as carrying less risk to the taxpayer. The flaw is assuming private investors will step in and take the gamble.

Actually, there is little risk in trying the insurance plan. If the plan doesn't work, Congress can always come in and enact a bailout plan with little harm done. I say we give the insurance plan a try. Even Dems would agree that private capital coming in would be the best answer.

How does a member of the US House of Representatives become a leader of the US Senate?

Easy. Harry Reid obtained his position through seniority, not brains. Reid does not go to the bathroom without Pelosi’s permission.

Democrats are not going to do all the heavy lifting while the Republicans sit back and jeer. That's the reality.

MM you are partially right. Pelosi stated yesterday that there would be no bill unless she had one hundred Republican votes “for cover” Pelosi is not stupid; you do not get to be the most powerful woman in the government by being stupid. She wants her Party’s ass covered. If this falls apart later, she wants to be able to point fingers at everyone- the other side of the aisle was for it too.

Just curious; how will it look if Palin shows up tonight at the debate, and in her opening remarks explains McCain is busy doing his real job, representing Arizona in the Senate during this crisis, and She is there to do her part to help solve this crisis by taking his place at the debate?

What would, or could Obama do?

I also think the advertising gimmick is inspired as well.

Think about it this way; a month from the election McCain stops spending money for a very clearly stated purpose that also more or less fits in with his campaign theme of 'Country First'. Obama goes nuts spends money like a Drunken Congress. Can Obama replace that money? Who then has more cash on hand going into the last few weeks of the election season?

If McCain can become the catalyst for a deal, that is in some ways icing on the cake.

Along the way, McCain is building a governing coalition with the conservatives in the senate and house.

I agree. McCain should come out and make the argument that we should try something else first before a full fledged bailout. The credit markets will be fine if they know that a bail out will be the likely answer if the first plan fails.

The insurance plan is a good idea to try. This would effectively allow banks to call a bottom on their junk mortgage assets, which would result in market pricing. Then what to do with the mortgages would remain in the private sector and not with the government.

Let's go back to yesterday's theory for a moment. We were being told by dern near everyone that there was "a good chance" that in time, the government will not only recoup the $700 billion, but earn several billions of profit as well.

What would happen with that profit, should it materialize, especially if there is a Dem president and Dem majority in the house and senate?

It sure won't be used to reduce the national debt. It will be plowed into a massive increase in the size of the federal government, into all sorts of useless social programs, and a never-ending string of earmarks.

It would be irresponsible of the Republicans to allow passage of a bill that would have this result, especially knowing that there is a risk that the Dems will hold all the controls on government.

redneck, that would be great theater, and I have to think the Obama camp has planned for that contingency. At least I hope they have.

It might backfire, however, if the moderator sticks to the topic of foreign policy (How can he do that, I wonder; would they stick to a topic of the Economy if Pakistan invaded India on the day of the debate?). Gov. Palin has not inspired in the times I've seen her talk about foreign policy.

But this ain't over 'till it's over, as the axiom goes. As I see things, McCain doesn't have to offer any solutions. For the NYT to suggest he swooped in like Superman to quickly fix in a single day everything deus ex machina is typical NYT partisan nonsense reportage. All he has to do, is, as presumed nominal Republican leader who very well may have to live with whatever result materializes as president, is deliver the Republicans to an agreement, then BANG dayidiz, in-yur-face stunt.

From that point of view, the more contentious, irritable, and discordant both sides appear, the better.

larsporsena, they don't need it. They want it for cover. They said Pelosi stated this precisely. They don't want to to be seen as singularly contriving the largest bailout in history. It's quite telling, actually. If they're going down, they're taking Republicans with them. There's scant chance for praise here.

I think that McCain is in a bind now. I think that his first instinct was honest. There was a crisis, he recognizes that and wanted to help solve the crisis.

e.g. when he was pounding on the Surge before the surge, when it was unpopular and folks told him he was going down with it by tying himself to a losing cause:

"I'd rather win the war than win the election"

At some level, he may fell that here. I know that his natural leadershio DNA has got to have kicked in:

"Lead, Follow, or get out of the way"

McCain is geneticly incapable of not trying to help in this.

However after committing himself here, he is hostage to the Dems who will now force him to abandon the debate or scurry off to it. either way, I thnk he is losing this fight, but I don't think he had a choice

Actually, there is little risk in trying the insurance plan. If the plan doesn't work, Congress can always come in and enact a bailout plan with little harm done.

Again the only risk is that no private investors step up to the plate. It's difficult to insure a product no one wants.

I have to say, I don't even care about the money. $700bn - whatever. That's less than we spend on social security each year, and the bailout is a one-off. So let's get real - this is pocket change in federal terms.

Actually I do care about the money because it's $700 billion that we don't have which means we either have to print more money or hope we can also finance our way out of this. It's not so much pocket change as it is raising our credit limit on the national Visa card.

Why? It seems to me that the insurance plan would, at worst, cost exactly the same as the buyout and, at best, much less.

My question is, this insurance idea. Does it have any possibility of breaking even or making us money? Because if not, it’s not going to cost the same or less then the buyout “at best”. At best, it costs nothing, at worst it costs a lot. The other plan, at best it makes money and at worst it costs something.

Maybe somebody who has had a chance to look into the new plan can check it out and tell me differently, but until they do I like the other plan best. At least, without add on’s for rewriting contracts and paying off acorn.

The other plan has been tried before and worked. I think it’s got a decent chance of working again. So for now, that’s what I’m supporting. I like capitalism as much as the next gal, but I don’t think buying and selling is anti-capitalist, even if it’s the government doing it. Insuring seems worse to me. I may very well be wrong, though.

If the Republicans were smart, check that, if they were politically devious, underhanded, sinister, and manipulative, how's that?, they'd put up resilient contentious opposition, then finally come to reluctant compromise, announcing McCain united them, thus propelling McCain a few points in the polls, precious metrics which I've personally never fully put faith.

My question is, this insurance idea. Does it have any possibility of breaking even or making us money? Because if not, it’s not going to cost the same or less then the buyout “at best”. At best, it costs nothing, at worst it costs a lot. The other plan, at best it makes money and at worst it costs something.

I honestly don't know the details of the insurance plan but I'll assume that if private firms do step up and purchase the securities and they turn out to be worth more, then the Fed doesn't have to pay a dime but it doesn't gain anything either (that's assuming the private investors aren't paying a premium to the Fed).

This is preventing me from producing two pop-up cards. One for my sister, another for a new sister-in-law. I've decided on a kitty sitting in a window that leans forward as the card opens. Window shutters also open with the card. So that'll be two mechanisms. This morning I woke up with the idea of putting a mouse on the cover, with the same mouse dangling from the mouth of the kitty on the inside of the card -- a piece of string for a tail. Like the kitty is presenting the mouse as a gift. Sort of cute, sort of gross. Think I'll cut bristles from a dustbin brush for whiskers. I'll post pictures when I'm done.

Frankly, this bailout is wearisome. Politics tends to tap the naturally occurring charm and sweetness right out of me.

Does this mean that the world is going to end? And if the failure of this bank doesn't end the world, why would the failure of any other bank do so? Or is it mass simultaneous failure that's the problem?

I don't know, You tell me.

As US banks collapse, what happens to global stock markets and investments, as people lose confidence and bank runs begin, as hedge funds and others move out of US currency into other assets, collapsing the dollar?

Mortgage crisis is the tip. Risky derivatives such as credit default swaps are just beginning to make news. US banks have tons of the stuff.

McCain is not a conservative and has never had the support of Republican Conservatives. The only reason he is doing better recently is because of Palin and because Obama is a worse bitter pill to swallow.

All of this political posturing means nothing anyway because we are doomed to repeat history.

The important thing for the McCain campaign is that McCain looks involved.

Whatever bill ultimately passes will have to enjoy Democratic support, so Obama won't be able to complain about it. If it passes without Republican support, McCain can attack Bush and the Democratic Congress for throwing hundreds of billions at Wall Street fat cats. It is win/win -- either McCain's in on whatever solution Democrats agree to, or he can paint himself as the principled outsider.

My question is, this insurance idea. Does it have any possibility of breaking even or making us money?

Since the institutions in question would have to pay for insurance, I'd imagine there's SOME chance of the government turning a profit. But the real benefit is that the moral hazard is lower; the companies can't just dump their underperforming securities on the government and keep the profitable ones.

Below is a copy of the Economic Rescue Principles being pushed by conservative member of the House.

Makes more sense to me than printing $700 billion of new money.

Economic Rescue PrinciplesCommon Sense Plan to Have Wall Street Fund the Recovery, Not Taxpayers• Rather than providing taxpayer funded purchases of frozen mortgage assets tosolve this problem, we should adopt a plan to insure mortgage back securitiesthrough payment of insurance premiums.• Currently the federal government insures approximately half of all mortgagebacked securities. (MBS) We can insure the rest of current outstanding MBS;however, rather than taxpayers funding insurance, the holders of these assetsshould pay for it. Treasury Department can design a system to charge premiumsto the holders of MBS to fully finance this insurance.Have Private Capital Injection to the Financial Markets, Not Tax Dollars• Instead of injecting taxpayer capital into the market to produce liquidity, privatecapital can be drawn into the market by removing regulatory and tax barriers thatare currently blocking private capital formation. Too much private capital issitting on the sidelines during this crisis.• Temporary tax relief provisions can help companies free up capital to maintainoperations, create jobs, and lend to one another. In addition, we should allow fora temporary suspension of dividend payments by financial institutions and otherregulatory measures to address the problems surrounding private capital liquidity.Immediate Transparency, Oversight, and Market Reform• Increase Transparency. Require participating firms to disclose to Treasury thevalue of their mortgage assets on their books, the value of any private bids withinthe last year for such assets, and their last audit report.• Limit Federal Exposure for High Risk Loans: Mandate that the GSEs no longersecuritize any unsound mortgages.• Call on the SEC to audit reports of failed companies to ensure that the financialstanding of these troubled companies was accurately portrayed.• Wall Street Executives should not benefit from taxpayer funding.• Call on the SEC to review the performance of the Credit Rating Agencies andtheir ability to accurately reflect the risks of these failed investment securities.• Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed tomake recommendations to Congress for reforms of the financial sector by January1, 2009.

What is needed now is an injection of liquidity into the financial system NOT a bank bailout!

DUH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

That is what this is. How many time do I have to say it? The 700b is to purchase investments (mortgage derivatives and CDS) that have intrinsic value. They are not proposing to give money away. They are buying depressed assets that don't have a market right now because of the tight credit market and lack of liquidity. The 700b will free up institutions to be able lend again because they will not be burdened with servicing the debt and the US Treasury will be able to sell the instruments back on the open market, still at a discount but also at a profit.

We have a chance here to save the world from total financial collapse and even make some money. But nooooooooo, instead we have our so called leaders playing on up manship games and the general public more interested in sticking to the fat cats (who deserve to be strung up). Instead of fixing the problem FIRST and then getting the financial system regulated sensibly (instead of trying to give away the farm to anyone with a pulse who could apply for a loan) they are dithering and diddlng us into a world wide depression.

We as a society are freaking doomed because people are idiots and we are being led around by idiots. Hope you all are ready to sleep in your cars.Because if this isn't fixed and fixed soon, this is the future.

However, what could be a simple fix is being larded up with give aways and earmarks. Give money to ACORN. Puleeeeze. Organizations like this are one of the reasons we are in this mess.

They can't just keep the bill simple. Oh nooooooooo. We must put all of out sacred cows and petty partisan greedy give away plans in the bill. We have to try to fiddle with taxes (taxing the future stock swaps in consolidations) and try to stick it to the "rich" by adding ever more taxes.

If I had the wherewithal right now. I would sell everything and move out of the US. Ireland is looking pretty good. Don't be surprised when the people who do have the ability to leave this sinking ship (the rich) and who are tired of being used as pinatas do wave goodbye.

Then, how are you going to give money to the poor and down trodden pipples in the socialist dream/nightmare that the liberals have created, when there are no more "rich fat cats" to rape.

Bah! Do not listen to the Queen of Bunny Dust. How better to delay and stall and make gifts to friends, not to help keep the stinking carcass of capitalism **spit** alive.

I have lived in auto, a beautiful people's car, the 1968 Zaporozhets. So comfortable to escape the nagging mother in law in small apartment ...which I am so very grateful to the Party to have by the way!

In my country we have a saying: The shortages will be shared equally among the peoples!

Did anyone explain why buying securities is socialist? The govt would buy and sell, and presumably we'd get a low price and stand to profit in the end, and it would be for the purpose of restoring the market. Why is insuring other people's business better or more free-market?

Please focus on that. These declarations the plan is "socialist" are just cheerleading to people who already agree with you. You may be amusing yourself, but you're not persuading me.

Did anyone explain why buying securities is socialist? The govt would buy and sell, and presumably we'd get a low price and stand to profit in the end, and it would be for the purpose of restoring the market. Why is insuring other people's business better or more free-market?

It isn't socialist in the least. Buying securities from these institutions at fire sale prices and then being able to sell at a later date, (in tranches not all at once. That would flood the market) is a smart move. The proposal isn't to take over institutions as they did with Freddie and Fannie. I do have reservations about the government now being the lender for mortgages. I hope at some point that they either do away with the Fannie Freddie system or return it to private capital with restrictions and oversight.

I don't know about the insurance part of the proposal, and have no opinion now, because I haven't read it yet.

What is socialist, is forcibly taking money from people with the express intention of giving it to others. Taxes need to be paid of course, but they shouldn't be for the purpose of income redistribution. That is a socialist/communistic precept.

What is socialist is to add all sorts of give away schemes, income redistribution plans and stick it to the rich vendettas into this proposal. Focus people. Focus Congress critters. This is a serious issue. Propose your socialistic plans later.

Cutting capital gains has no effect on toxic securities, because the whole problem is that there are no gains.

Regarding socialism. Isn't it literally true that if owning stock on company X is owning a piece of the company, then govt owning that stock = state ownership of that company? That the strings attached (limits on CEO compensation and severance) sound nice does not change the fact that they're state control of what the companies do. Does the claim that the state will only temporarily own a piece of the companies make this not socialist? Or is it just a new more leveraged way to exert state control over the private sector.

This doesn't mean that it's the wrong thing to do. If parts of the private sector want taxpayer money, it seems to me that you either partially socialize them, give the money with no string, or tell them to drop dead. Most people think the second and third alternatives are not acceptable.

Wouldn't you rather make money then lose it, regardless of what it's spent on?

Actually, no. If we make money on this deal and then Congress uses that money to expand the government, that's going to cost us down the road. After the up-front costs (which would come from the profits on the bailout), there would be ongoing expenses (which would be paid for with taxes or debt). In other words, that profit would quickly turn into expenses.

However, if Congress was responsible with the money and paid off the debt or distributed it with tax refunds, I would be ok with that.

However, if Congress was responsible with the money and paid off the debt or distributed it with tax refunds, I would be ok with that.

I saw some sort of 'statement of agreement' from the senate banking committee that said they would use 'most' of the money to do just that. I still think it's better to cross that bridge when we come to it then to have a big fat recession/depression.

I think the original Paulson plan, in which the government buys and sells securities looked quite good and clearly not socialist by any legitimate definition.

The negotiated plan that took shape yestereday, in which the government would take on an equity stake in the banks, and throw a squirrel's nest of government directives into the work of corporate governance seems more suspect.

I've said it on earlier posts. The fundamental problem with these banks were not that they took on excessive risk. It was that they were too big to be allowed to fail.

Once the government holds an equity stake in such businesses, then they really can't be allowed to fail, no matter how reckless their behaviour.

And anyone that thinks the government would inhibit reckless behaviour should review the oversight of mortgage lenders by Senator Dodd and Congressman Frank.

Half of me is in favor of a quick, bipartisan plan, but then I see those two guys leading the way and I stop caring.

I could have pulled my hair out this morning listening to Senator Reid prattle on about how the injection of presidential politics has hurt. Yeah, well he called for it, multiple times. Only he never called for Obama to help, only McCain. Then when McCain actually did step up, suddenly Reid changed his mind... and then he changed it back... and this morning he's back to blaming McCain. Make up your friggin mind, loser.

When I actually find myself appreciating Senator Dodd's words about the work they've been doing the last few days, you know Reid has knocked my bullshit filters way out of proper calibration.

The media's biggest failure here is in the failure to recognize, and the failure to press Reid and Pelosi, on the point that the plan will pass in its current form. Republican obstruction? Bullshit. Republicans are in a minority, and this is a House-led bill, so they can't obstruct. Furthermore there are enough Republicans who are willing to vote that there is some cushion, even if it's not as much as the Dems want. If Pelosi and Reid believe in the framework they've put together, they can pass it.

I'm honestly mystified by their blame Republican strategy here. My understanding from reading statements by the Democrats is that their constituents hate the idea of the bailout. They're convinced that this is a gift to the Wall Street fat cats. Adding an oversight program and a few handouts for lefty organizations like ACORN really isn't going to mollify that sentiment.

So maybe the answer is that Pelosi & Reid don't believe in the bailout. Perhaps they need the Republicans on board so that they can blame Republicans for it in the first place. Maybe Pelosi wants enough Republican votes so she can give her more vulnerable Democrats the ability to vote against the bailout.

I'm truly mystified. Anyone else want to hazard a guess? I'm looking for serious and frankly cynical discussion here. Don't be idiotic and spout off cliched anti-Dem or anti-Rep talking points. Put yourselves in the shoes of Pelosi, Reid, Boehner, and McConnell and figure out what they are trying to do. Assume that they are trying to "win" in some political sense and work from there.

Interestingly, both Rich Lowry and Stephen Spruill over at NRO are skeptical of the House Republican alternative plan. I'll be honest, I am too. I really would rather see them focus in stripping out some of the most shameful aspects of the current plan, like the Christmas gift to ACORN.

Stephen Spruill's argument is really an interesting one. Basically, he feels that a direct bailout where we purchase tainted paper is actually more compatible with limited government principles than constructing a new insurance entity. The latter is far more likely to persist as a long-term institution; the former is easier to cut off over time.

Dick Cheney has taken eight years of hectoring from the left because of his former employment with Halliburton. You've heard the usual drivel - we went to war because Dick Cheney and his buddies at Halliburton want to make a profit, etc.

Well, Hank Paulson is only about one year removed from a nice cushy job at Goldman Sachs, where he was one of the mega-million dollar-per-year-salary guys. And now he wants to use taxpayer money to bail out Goldman Sachs.

Stephen Spruill's argument is really an interesting one. Basically, he feels that a direct bailout where we purchase tainted paper is actually more compatible with limited government principles than constructing a new insurance entity.

Did anyone explain why buying securities is socialist? The govt would buy and sell, and presumably we'd get a low price and stand to profit in the end, and it would be for the purpose of restoring the market. Why is insuring other people's business better or more free-market?

It is not textbook socialism but it is definitely nearing the slippery slope of owning the means and modes of production and services. I think there should be some significant concerns when the federal government steps in and starts playing the part of the investment banker while aptly demonstrating it can't even manage the Senate's cafeteria at a profit.

The interesting aspect of this is the government plan is based upon using $700 billion that doesn't exist other than the form of issuing more treasuries hoping that the assets they're purchasing or insuring will actually be worth more than they are speculating they are now. Correct me if I am wrong but that sounds a whole helluva lot like a credit default swap.

Sorry if this has been said before (I haven't been reading all the comments), but McCain's big criticism of Obama has always been that he presents himself as our savior when he actually hasn't done much. And then McCain turned around and acted like he was gonna go to Washington and save us all from the financial crisis, and he did virtually nothing there from what I can tell.

Capital gains are a form of income. Cutting cap gains taxes improves liquidity only to the degree that there are gains out there to be realized

There are plenty of gains out there to be realized. I have clients right now who are sitting on 20,000 shares of CVX with an average split adjusted cost basis of less than $5.00. Do you think they would love to diversify their portfolio by selling half of their CVX? Would they like to take that money and pay off their house, buy the kids a new house, purchase a life annuity Yes!! Do they want to pay 15to 25% capital gains. F*ck no.

Frankly, they would rather die and let their kids have the stock at a step up in value than pay the government. So the gain sits locked away. We can diversify them with an exchange fund, but that doesn't solve the tax problem and it doesn't reduce their exposure to market risk.

OK, sounds good. But numbers wise, do you think that we'd release enough liquidity in the short term with a cap gains cut? Your CVX holders sound like a good example, but are there enough of them? I realized a bunch of gains awhile back (decent timing), for instance, and in my case I'm not seeing that much I'd do personally.

mcg. There are lots of people holding appreciated assets that they would love do sell or convert to other investments but are not likely to do so because they just don't want to pay the taxes.

Some examples from my own client base.

8 undelovoped lots purchased in the Carmel Valley area in the early 80's at 15 to 20k each. Now worth 500k to 750k each.

Rental homes in the Oakland Hills inherited in the 60's from family members. Cost basis from 60's about 80 to 100k. Current value high 6 figures low 7 figures ..each.

Original owner of a 69 Boss 429 Mustang (among other classic cars he owns). One sold at Scottsdale this year for $245,000. His is probably only worth about $150,000. He'll never sell though. Loves his Boss :-)

Rep. Paul Kanjorski (D-Pa.) on Friday suggested Democratic leaders did not solicit enough input from House Republicans on the financial rescue package.

[snip]

Asked whether House GOP lawmakers are right to believe they were slighted, Kanjorski replied, "I don't know that we included them in enough, and that's always a dangerous thing in politics. Remember, you're dealing with egomaniacs. We're all egomaniacs down here."

[snip]

Kanjorski said, "Now, what we have to do is open that door for the House Republicans, bring them on in and say, 'Guys, you know, we can't cast your idea aside.' Let's listen to it ... I think we have to allow them to talk their idea out. We have to be willing to listen."

What really outrages me is that you can only write off $3000 in capital losses per year -- but you pay taxes on every penny of capital gains. It is very nearly a heads I win, tails you lose situation for the government.

It also encourages people to hang on to bad investments instead of putting their money into something useful. It is certainly discouraging me from doing so. I've got tens of thousands of dollars I'd like to free up by ditching some of the lousy performers I'm invested in, but I might as well not bother because it'll take me years to claim the loss.

I have a suspicion that when the must-pass-or-gov't-shuts-down-at-midnight budget resolution hits Bush's desk next week, larded up with pork and giveaways, the Pelosi-Reid idiot brigade would like to have created an environment in which if Bush even thinks about vetoing the bill, his party will get stuck wearing the "obstructionist" blame like the gal in those bukkake videos.

The only thing Pelosi and Reid have shown any modicum of talent for is staging these little media-driven blame-game set pieces. Thus, I wouldn't be surprised if they're doing a little advance staging here for next week's fireworks. After all, it's one "crisis" after another with these clowns.

Keep in mind that there was never a deal. The Democrats did a deal with the White House and the Treasury, but ignored the Republicans in Congress. That would have been fine - except that they probably need 60 votes in the Senate AND Pelosi wants at least 100 Republicans in the House for cover. Pelosi had pissed them off when adjourning this summer, turning off power and the C-Span cameras, while the Republicans tried to carry on for another two days. And now she expects them to give her and her party cover by passing this bill? Good luck.

To get all the Democrats on board, it had turned into a Christmas tree, with goodies for all sorts of constituancies, including the notorious votor fraud group, ACORN.

One problem with the deal struck (and ultimately rejected) is that it essentially bails out the financial institutions for making bad loans. It went far beyond just giving them liquidity, which is what they need right now. Rather, it had the U.S. buying those bad loans at face value - i.e. giving the banks their profits, despite making so many bad loans.

Why shouldn't the financial institutions making these bad loans pay the price for their folly? And the stockholders who had money in the stock and/or bonds of the banks? And, in particular, the officers, directors, etc., who have large option positions on this near worthless stock?

The normal Democratic solution is obvious here - take the direct approach, and then include extra provisions to keep the officers from getting golden parachutes. But they also should get wiped out as far as their own stock and bond holdings go.

At least the Republicans in the House are addressing the real problem - that a lot of financial institutions have assets that are grossly underpriced and illiquid, as compared to their actual value. That is what is needed, to free up the actual value of their loans in cash. Not for the bad loans, but rather for the good and mediocre ones that do have real long term value, but are illiquid right now due to the panic and crisis.

The distressed Washington Mutual had been struggling to raise capital to shore up its financial statement, following the start of subprime crisis almost a year ago. More than $16.7 billion worth of withdrawals were made by its clients since September 16

This whole "crisis" is phony. Nobody in Congress really believes it. If they did, they would have already gotten rid of capital gains tax.

This is nothing more than Wall Street running around hysterically, led by Paulson (who is completely in bed with Wall Street--the man was part of this problem while CEO of Goldman Sachs) while Congress is saying "Trust me" without detailing what they are doing.

Where is the transparency so many members of congress are demanding from Wall Street?

Very smart, reliable economists from both sides of the political spectrum have outlined dozens of things Congress AND Wall Street can do short of dropping a $700 billion inflation bomb into the economy, yet Congress and Paulson adamantly refuse. Why isn't THIS news? (Because the press is composed of rather dumb people who've bought into the crisis hook line and sinker--they ignore the thousands of banks that are not only solvent, but have lots of cash and are giving loans. The MSM has become water carriers for liberal politics and this is liberal politics out the wazoo.)

The bottom line is that any bill endorsed by Bush, Dodd and Franks must, by definition, suck and suck badly.

The reason to cut capital gains is to encourage people to invest in cash. That's the genuine problem--money funds broke the buck; meaning they lost money. One quick solution is to encourage people to put money in to CDs and Money Markets and keep it there and cutting capital gains is one easy way to do that. (Heck, just cut capital gains if the gains from a security sale go to purchasing 3-year CDs AND waiving all capital gains on CD and Money Market purchases made in 2008 and 2009 and held for at least three years.)